The Reserve Bank of Australia’s (RBA) unexpected decision to keep the cash rate unchanged this week has caught economists and financial institutions by surprise. Following months of speculation about an imminent rate cut, the RBA’s decision to hold the rate steady has disrupted the predictions of Australia’s largest banks, including the Big Four.
Despite this unexpected hold, Australia’s major banks—Commonwealth Bank (CBA), Westpac, NAB, and ANZ—have adjusted their rate cut forecasts for the remainder of the year. Although the banks were caught off guard by the RBA’s decision, they still anticipate further rate cuts, though they now predict these cuts will be more gradual than initially expected.
The Rationale Behind The RBA’s Surprise Decision
The RBA’s decision to hold the cash rate was unexpected because the majority of economists, including those from the Big Four banks, had forecast a 0.25% rate cut. However, Governor Michele Bullock stated that the Board needed additional time to assess economic conditions before implementing further rate changes. This cautious approach reflects the central bank’s focus on meeting its inflation and employment targets, while also navigating global economic uncertainties.
Bullock made it clear that the institution would be adopting a “gradual and cautious” approach, especially given the unpredictability of future inflation data. This decision underlines the RBA’s commitment to a careful strategy, aiming to avoid exacerbating any economic risks while still striving for long-term stability.
Adjustments in The Banks’ Rate Cut Forecasts
Following the RBA’s surprise move, the Big Four banks revised their expectations for rate cuts. Commonwealth Bank (CBA) now anticipates two rate cuts, one in August and another in November, lowering the cash rate to 3.35%. Senior economist Belinda Allen explained that an August rate cut seemed almost certain, barring any significant inflationary surprises in the coming weeks. However, she also highlighted that November remained a likely option for further action, in line with the RBA’s cautious stance.
Commonwealth Bank, Westpac, NAB, ANZ reveal updated RBA interest rate cut predictions after ‘surprise’ hold https://t.co/i3z3BxrniU
— Yahoo Finance Australia (@YahooFinanceAU) July 8, 2025
Westpac has updated its forecast as well, predicting four rate cuts over the next several months. The bank now expects reductions in August, November, February, and May, which would bring the cash rate down to 2.85% by mid-2024. Westpac’s chief economist, Luci Ellis, noted that while the August rate cut seemed probable, the bank was cautious about inflation surprises that could delay action. The bank’s predictions reflect the RBA’s careful approach to rate reductions.
Similarly, NAB has adjusted its forecast, predicting three rate cuts, in August, November, and February, with a final cash rate of 3.10%. ANZ, on the other hand, maintains its expectations for two cuts, one in August and another in November, bringing the rate to 3.35%.
The economic Implications of Future Rate Cuts
For Australian borrowers, these revised forecasts offer a sense of relief. After a series of rate hikes over the past year, many mortgage holders have faced increasing financial pressure. The prospect of future rate cuts, even at a slower pace, provides a potential cushion for those struggling with higher mortgage repayments.
Further rate reductions could also stimulate broader economic activity by encouraging increased consumer spending and investment. As borrowing costs ease, households and businesses may feel more confident about their financial positions, contributing to overall economic growth. However, much will depend on inflation and employment figures, as the RBA continues to balance its monetary policy decisions with the need to foster economic stability.
Though the RBA’s decision to hold rates this week may have caught the market by surprise, the revised rate cut forecasts from the Big Four banks suggest that the central bank will likely continue to ease rates over the next year, albeit with greater caution than originally anticipated.
